Warren's big healthcare plan relies on big assumptions

[November 02, 2019]  By Jason Lange and Amanda Becker

WASHINGTON (Reuters) - Democratic presidential candidate Elizabeth Warren's plan for universal healthcare rests on an assumption she can radically change an industry the size of Germany's entire economy without new costs for the average taxpayer.

On paper, the plan by the senator from Massachusetts to use government bureaucracy to create a more efficient healthcare system gets credibility from the fact that most rich nations, including Canada and France, already do just that.

But the specifics of her proposal, released on Friday as Warren seeks her party's nomination for the 2020 presidential contest, reveal the scope of an overhaul that would be one of the largest economic experiments in modern history.

By trying to cut costs aggressively across a $3.5 trillion healthcare sector that makes up nearly a fifth of the U.S. economy, Warren would hit the finances of enough people to create major political blowback.
 

"The plan makes a lot of assumptions about how seamlessly this could be enacted and implemented," said Larry Levitt, a health policy expert at Kaiser Family Foundation, adding that there was no precedent for such a large overhaul.

Not only would medical businesses large and small resist decisions by the government to pay less for drugs and services, the plan could paradoxically underfund an expanded health insurance bureaucracy, said Linda Blumberg, an economist at the Urban Institute's Health Policy Center.

Warren would largely scrap the private health insurance industry, whose profits and high administrative costs are a factor behind Americans spending about twice as much on healthcare as their peers in advanced countries - while getting similar quality services.

In its place, Warren would make the United States' Medicare federal health insurance program, which currently covers people over 65 and the disabled, into a "Medicare For All" universal benefit.

But economists say the transition to a system guided less by market economics and more by the government might be difficult.

Warren, who is a leading contender to be the Democratic Party candidate taking on Republican President Donald Trump in the November 2020 election, said her plan would not cost the middle class "one penny" in taxes.

As part of its bid to do that and lower costs, Warren's plan puts such strict limits on Medicare administration spending that the government might not have the resources to do a good job at setting prices for vital services, Blumberg said.

Senator Elizabeth Warren (D-MA) speaks during an event to introduce the "Medicare for All Act of 2017" on Capitol Hill in Washington, U.S., September 13, 2017. REUTERS/Yuri Gripas/File Photo

"You don't want to overly disrupt the healthcare system," Blumberg said.

Warren estimates her plan would require $20.5 trillion in new federal spending over the next decade. Cost-cutting measures aside, she would rely on an array of new taxes to fill the gap.

About half of the new federal spending would be covered by having businesses direct most of their current spending on private health insurance into a government fund.

The rest would largely come from new taxes on Wall Street, big businesses and wealthy individuals.

These include:

- A transactions tax of 0.1% on most securities and transactions involving derivatives.

- A systemic risk fee on financial institutions with $50 billion in total assets.

- A repeal of corporate tax breaks in the 2017 tax law, returning the top corporate tax rate to 35%.

- A new 2% tax on net wealth above $50 million and a 6% tax on wealth over $1 billion.

Warren advisers said the added levies would make America's overall tax burden - currently one of the lowest among rich nations - into a merely average one.

Health policy experts see the feasibility of Warren's plan in a similar light: If other governments can provide universal care without breaking the bank, surely America can as well, at least technically.

But the long list of tax and healthcare policy changes is seen as standing little chance of passing Congress even if Democrats gain control of both chambers, given the opposition from some moderate members of the party.

"Warren's challenge is more about politics than arithmetic," said Levitt.

(Reporting By Amanda Becker and Jason Lange in Washington; additional reporting by Joseph Ax in New York, Editing by Soyoung Kim and Jonathan Oatis)

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